HomeMy WebLinkAboutR09-Redevelopment Agency
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V ANIR DEVELOPMENT COMPANY, INC.
P.o. Box 310, Vanir Tower, City Hall Plaza, San Bernardino, California 92402
Telephone (714) 884-9477
Commercial/Industrial Developers - Real Estate Brokers
October 5, 1992
Mayor W. R. Holcomb
THE CITY OF SAN BERNARDINO
City Hall
300 North D Street
San Bernardino, CA 92418
. Dear Bob:
Thank you for the opportunity of presenting our Offer to Purchase the 20 I Building in
the City of San Bernardino.
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This offer was reviewed and revised on several occasions to allow the Economic
Development Agency Staff sufficient time to provide a thorough analysis of our offer.
We received their latest comments and have revised our offer accordingly.
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Our offer is being made with the assumption that the City, as many other cities and
governmental bodies throughout the country, is desirous offocusing its assets and
attention to the operation and management of City affairs. We have, therefore, also
included our comments to Staffs report to the Agency Committee.
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We have tailored our offer to meet the needs of the City. As you must conclude, the
Offer to Purchase is in the best interest of the City.
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Thank you for your kind consideration.
.
Very truly yours,
V ANIR DEVELOPMENT COMPANY, INC.
DOMINGUEZ
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Enclosures:
Offer to Purchase
Comments to Staff Reports
Summary
LOS ANGELES
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SAN BERNARDINO
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CONFIDENTIAL
REVISED
OFFER TO PURCHASE
1. SUBJECT PROPERTY: 201 North E Street, San Bernardino, California . .
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2. PURCHASE PRICE: $5,000,000
3. BUYER: Vanir Development Company, Inc. or
its nominee
4. SELLER: Redevelopment Agency for the City of
San Bernardino
5. CLOSE OF ESCROW: 60 days from execution of escrow instructions
6. TITLE INSURANCE: First American Title Insur;mce provided by Seller
7. LEASE AGREEMENT: A mutually acceptable Lease Agreement
from the City of San Bernardino
(see attached terms).
8. ACCEPTANCE: This Offer to Purchase, unless accepted in
writing, will expire on October 15, 1992.
Richard .Dominguez, President
Date: 5 0 tT ~~
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By:
CITY OF SAN BERNARDINO
.. By:
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Date:
REDEVELOPMENT AGENCY FOR
THE CITY OF SAN BERNARDINO
By:
Date:
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CONFIDENTIAL
LEASE AGREEMENT TERMS
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8. Lease Term: 24 year term.
b. Net Lease: All utilities and expenses including real
estate taxes, if any, are to be paid by the
Lessee.
c. Base Rental Rate: $.75 per square foot per month for the entire
building.
d. Rental Adjustment: 1. During the first five years of the lease
term, the rental amount will be adjusted to
include onlv that space which is occupied.
2. There shall be a 3% increase in rent
computed and adjusted annually throughout
the term of the lease beginning upon the
5th year of the lease term.
e. Option to Purchase: At the expiration of the 20th year of the
initial term, the City may repurchase the
facility for the sum of $2,000,000, reducing
thereafter by $500,000 per year to the end of
the lease term with a payment of$10.00 at
the expiration of the lease term.
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V ANIR DEVELOPMENT COMPANY, INC.'S COMMENTS REGARDING
ECONONUCDEVELOPMENTAGEN~S
THIRD AND FINAL STAFF REPORT
1. Vanir has raised its offer to $5,000,000.00 cash without requiring are-appraisal.
The only reason Vanir conditioned the price upon an appraisal was to justify the price for
the Economic Development Agency, as this was a concern of Staff at the prior Hearing.
2. According to Staff, borrowing money is cheaper. While it is true that interest
rates are lower, the proposed bond financing requires the City to put its credit on the line.
The proposed Bond financing requires the City to additionally secure its financing with a
"Letter of Credit" to increase its bond rating to "A". While the "Letter of Credit" scheme
may act to lower the interest rate, it further obligates the City and may impair future
loans needed by the City.
3. Vanir agrees to allow the building to be offered for sale during the escrow period
to an all cash buyer if so desired by the Agency. Staff is correct that this is a flat real
estate market and is predicted to continue for several years.
The important facts to consider regarding sale is that:
(a) The Agency is selling at a profit.
(b) The lease rates offered to the City are below today's market rates for
comparable facilities.
( c) The Offer exceeds the appraised value according to the Agency's appraisal
documents.
(d) The City ends up owning the building, thereby, recapturing all of its lease
payments and any appreciation.
4. The purchase price is based on the low interest rates available in today's market
tied to a function of rent. If the City desires to pay more rent, we are willing to increase
the Offer accordingly. Likewise, if the rent is lowered, the price would reduce.
5. It was understood from Staff that control of the building is important to the City.
Therefore, Vanir will provide a mechanism to remain under the City's control throughout
the term of the lease.
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SUMMARY:
The Offer is in the best interest of the City for the following reasons:
1. The City may reinvest the funds for City business without the need to increase
debt by borrowing more money and signing a Letter of Credit which could possibly
impair the real needs of the City's financial future.
2. The City remains in control of the building able to raise rents if it so desires and
collect the increases to the sole benefit of the City.
3. The City will make a profit upon sale of the building (approximately $1.6
Million).
4. The current status of the building according to Staff is that it provides a very poor
return on the City's investment.
5. The City may purchase the building at the end of the lease term for $10.00 and is,
therefore, the beneficiary of all the "upside" appreciation. The building will also be
delivered "free and clear".
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COMMENTS REGARDING DEVELOPMENT DEPARTMENT
STAFF REPORT
Re:
Offer to Purchase
201 North E Street Building
San Bernardino, California
Vanir Development Company, Inc. has revised the Offer in order to meet the concerns
and needs of the City as set forth in the above-referenced Staff Report.
1. Staff is concerned that their Letter of Opinion is not a comprehensive appraisal
and that $4.75 miIlion is not "adequate" return for the EDA investment. Therefore,
Vanir Development Company, Inc. has hereby increased its Offer to $5 million subject to
the appraiser completing a comprehensive appraisal.
2. Additional borrowing by the City versus sale. Staff feels that a loan may be more
beneficial. Most cities are attempting to borrow less money and not become involved in
the real estate business.
3. Most commercial buildings today are seIling under appraised value. The
important thing to remember is the City has bought the building and is re-seIling it for a
profit. To alleviate concerns regarding value, Vanir is allowing the City to appraise the
property and accept cash offers during the first sixty days following acceptance by the
City of this Offer.
4. Staffis concerned that this is a 14% return on investment which is not accurate as
it fails to consider that the City ends up on full ownership and control of the facility.
Furthermore, Staff fails to consider that if the property increases in value (which is one
of the main concerns of the Staff) and assuming that the increase in value is
approximately 5% per annum, the building at the end of the lease term will have a value
of approximately $18 miIlion.
5. Vanir Development Company, Inc. agrees with Staffs conclusion.
6. Vanir Development Company, Inc..will provide a mechanism which will provide
for ownership and operation of the building to remain under the City's control throughout
the term of the lease.
7. In this paragraph, Staff assumes that the building, because it is owned by the City
and paid for by tax funds, it is, therefore, free to the City. Most businesses and
governmental agencies, as a matter of prudent business, allocate rent and expenses to its
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own facilities. If the City is not doing this, it should do so irrespective of the
consequences of this proposal.
8. Staff indicated that EDA would lose any potential appreciation in value over
time. The Offer provides that all appreciation of this building is provided to the City.
ADVANTAGES:
1. Vanir Development Company, Inc. has increased its Offer of$4.5 million to
$5 million.
2. The City could utilize the sale proceeds for full investment income for other
projects needed by the city. As it is, the return on the investment is based upon the
ability of the City to run and operate an office building.
3. No comment.
. Sf::;:-23~92 WED 14: 53.
DEVELOPMENT DEPT.
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FAX NO. 7143845434
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DBVBLOPMB.T DJ:PARTMENT
or THE CITY or SAN llEIlBARDINO
llBDEVELOPMBl'lT COtIUl'TEE
AGElIDA IT:EM
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FROM:
lCENNEIH J. HENtJERSON
Executive Director
SUBJECT:
OFFIll. TO PURCHASE - 201 BOIml "1:" STll.BB'r BUILDING
DATE:
September 23, 1992
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RecD1IIIIIended ActionCs):
That the Redevelopment Committee reeo~end rejection of the offer to
purchase from Vanir Development CompaDY, Inc.
Administrator
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Committee Reeommendation(s):
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KJH:JMW:lag:0066e
REDEVELOPMENT COMMITTEE
Meeting Date: 9/24/1992
Agenda Item No.
,SEP~23-92 ~ED 14:53
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DEVELOPMElfr DEPARTMENT
STAFF REPOR't
OFFER TO PUIlCBASB - 201 North 'E' STIlJ:ET BUILDING
On August 6, 1992, the Redevelopment Committee received and filed staff
comments on an offer to purchase the 201 North "E" Street building ("the
building") from Vanir Development Company, Inc., ("Vanir"). As staff had
not had an adequate amount of time to analyze this $4.5 million offer,
the Committee asked that further evaluation be performed.
"
On September 10, 1992, the Committee considered a detailed staff analysis
and a recommendation to reject the $4.5 million offer. Representatives of
Vanir were present and submitted an improved offer for $5 million (see
attached copy). The Committee directed that said offer be thoroughly
. evaluated and a recommendation be brought back to the September 24, 1992
Committee meeting.
Staff, with the assistance of B.H. Wood and Associates and Miller &
Schroeder Financial, Inc" has analyzed the new offer and presents the
following breakdown of ad.vantages and disadvantages:
DisadvantaRes:
1. While Vanir has raised its offer to $5 million, it has stipulated
that the Economic Development Agency (EDA) must perfopn an appraisal
to justify this price. This could cost $4,000 to $5,000 and take a
month or more to complete. The Committee might explore whether
Vanir would waive this requirement.
2. If the desire is to raise cash from the building, tapping into the
equity could probably be accomplished less expensively through a
bond issue, Jim Iverson from Miller and Schroeder Financial, Inc.,
has advised the Mayor the Agency could accomplish the desired result
more efficiently with bondinl than through acceptance of Vanir's
offer. A more detailed discussion of this issue ean be found at the
end of this report.
3. If the decision is made to sell the building, it should be
advertised and other offers invited. EDA might receive a better
offer than Vauir's, This is an appropriate course of action to
enable the Agency to get a better offer and give potential buyers a
fair chance to compete. While Vanir has offered to allow EDA to
solicit other cash offers for a period. of sixty (60) days following
acceptance of its offer, this places a considerable time constraint
on any marketing efforts that-might be undertaken. It should be
noted, however, that Staff can see no urgency or need to sell snd
feels that this is a bad time, economically speaking, for anyone to
be selling property. In other words, it is a buyer's market.
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KJH;JMW:lag:0066g
llEDBVELOPIIKIIT COMMITTEE
Meeting Date: 9/24/1992
Agenda Itell No.
. SEP-23-92 ;';~D 14: 54
DEVELOPMENT DEPT.
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FAX NO. 7143845434
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DEVELOPMEIlT DEPARl'MEftT STAFF REPORT "
Offer to Purchase - 201 Borth WBW Street Building
September 23, 1992
Page Bualber -2-
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4. Vanir's offer involves a leaseback to EDA at $.75 per square foot
NNN. While Vanir offers to charge this rate only on the space
actually occupied during the first five (5) years of the lease term,
the rent for the balance of the term would be based on the entire "
building leasable square footage. It is debatable whether the City
and/or EDA would grow into all of the approximately 70,000 square
feet of space within five (5) years.
Though Vanir assumes that the building is currently seventy percent
(70X) occupied, staff estimatea that the figure would be closer to
fifty percent (SOX), unless we include spsce on the second floor
which is occasionaly used by Personnel/Civil Service for testing and
for various other City functions such as Management Association
meetings. It is unclear whether Vanir would consider this
intermittently used space as "occupied". Moreover, while EDA would
be paying $.75 per square foot, we are not receiving that much from
Big Five or Isabella's Ristorante, nor is it clear that we will be
able to realize this much from future rentals. Finally, staff feels
that, for a "credit tenant" such as EDA, a more appropriate rental
rate would be in the neighborhood of $.50 per square foot.
5. Under the proposal submitted by Vanir, the Agency would be
responsible for all maintenance, janitorial, utilities, taxes,
insurance and any and all miscellaneous costs, the same items it is
currently responsible for as owner.
Advantu.es:
1. The receipt of $5 .i11ion in cash, less sale expenses, would
certainly be.beneficial to IDA's financial prOfile. It is a180
noteworthy that the proceeds would flow back into tax increment, as
opposed to bond proceeds. In terms of funding new projects, tax
increment is less restricted than bond proceeds.
2. Assuming the funds will be retained, EDA could receive investment
income on the sale proceeds until they were used for another
project. As it is, with the buildinl largely unoccupied, EDA
receives little in the way of a current return on its investment.
This situation could be reversed if the building is fully rented
under EDA ownership.
3. Under the new offer, Vanir proposes a twenty-four (24) year lease
term, siving EDA the option to repurchase the building in year
twenty (20) for $2 million. Thereafter, the repurchase price drops
by $500,000.00 per year until year twenty four (24), When EDA may
repurchase the building for $10.00. This repurchase option is
undoubtedlY attracti~e, as the building will slmost assuredly be
worth tens of millions of dollars by the expiration of the lease
term.
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KJH:JMW:lag:0066g
REDRVELOPm:RT COMtfiTrEB
Meeting Date: 9/24/1992
Agenda Item No.
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DEVKLOPMEBT DEPAIlTMEl'lT STAFF REPORT
Offer to Purchase - 201 North "E" Street Buhdill&
September 23, 1992
Page Number -3-
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though there is no questign that Vanir's revised offer is ~ore attractive
than the original, staff still recommends against acceptance of the
offer. An analysis by Miller & Schroeder Financial, Inc. (copy attached)
demonstrates that EDA would be far better off by issuing bonds against
the property than by selling to Vanir.
'.
the principal components of the analysiS can be found in the first tbree
pages (numbered 002 through 004). the first page is an analysis of the
costs and benefits to EDA if it accepts the current Vanir offer involving
the $.75 per square foot rental figure. As can be seen at the lower
right of the table, this scenario would result in a present value debit
balance to the agency of $3,408,134.20, In other words, this is what it
would cost EDA to agree to the current offer.
The second page provides the same type of cost/benefit analysis, but this
time looking at the same offer from Vanir except that the rental figure
has been changed to $.50 per square foot. Again, the result can be seen
in the lower right of the table. As one would expect if EDA's rent was
lower, the present value debit balance is lower than in the above
example, but still amounts to $605,423.44.
The third page examines the costs and benefits to EDA of pursuing a bond
issue instead of selling the building. Once again looking at the lower
right of the table, it can be seen that the present value debit balance
for this scenario is only $73,596.05, and is thua the least costly
alternative of the three which have been examined.
According to the analysis, the long term savings to EDA from bonding, as
opposed to accepting Vanir's revised offer, amounts to $3,334,538.20.
This figure 1s arrived at by subtracting the bonding cost of $73,596.05
from the cost of the current Vanir Offer, which is $3,408,134.20. For
Vanir's offer to be the equivalent of a bond issue, the purchase price
would have to be $8,334,538 with a rental of $.75 per square foot or
$5,531,827 with a rental of $.50 per square foot (assuming all other deal
points as enumerated in Vanir'u revised offer stay the same).
Based upon the foregoing, Staff recommends adoption of the form motion.
leE J. REND RSOK, b:ecutive Dtrector
Development Department
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XJH:JMW:lag:0066g
REDBVELOPKEIlT COMMITTEE
Keeting Date: 9/24/1992
Agenda Itelll No.
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SEP-23-92 ~~D 14:55
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DEV~t~T DEPT.
FAX NO. 71~5434
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VANIR DEVELOPMENt COMPANY,INC.
P.O. 80x 310. vanirTower, Cily Hall PI..ll, S.n Bernardino, CaliComia 92402
Tc1tphOGO (714]) 8801-9471
Commcrcial/l4ldwuial Developers - Real Euate BtokeR
September 10, 1992
..
Chairwoman Esther Estrada
REDEVELOPMENT AGENCY COMMIITEE
201 North "E" Street
San Bemardino, CA 92401
Dear Esther:
Thank you again for the opportunity of presenting our Offer to Purchase the 201
Building in the City of San Bernardino.
As you know, this matter was postponed to allow Staff sufficient time to provide a
thorough analysis of our offer. Having received that information from Staff today, We
have revised our offer accordingly.
Our offer is being made with the assumption that the City, as many other cities and
governmental bodies throughout the country, is desirous of not being in the real estate
business and, thereby, focusing its assets and attention to the operation and management
of City affairs.
We have revised our offer to meet the needs of the City and as you must conclude, the
revised Offer to Purchase is in the best interest of the City.
Thank you for your kind consideration.
Very truly yours,
VANlR DEVELOPMENT COMPANY, INC.
HFD:cb
Enclosures: Revised Offer to Purchase
. SEe-2H2 ;':ED 14: 56
DEVELOPMENT DEPT.
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CONFIDENTIAL
OFFER TO PURCHASE
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1. SUBJECT PROPERTY: 201 North E Street, San Bernardino, California
2. PURCHASE PRICE: $5,000.000 or aopraised value. whichever ;s less
3. BUYER: Vnnir Development Company, Inc. or
its nominee
4. SELLER: Redevelopment Agency for the City of
San Bernardino
5. CLOSE OF ESCROW: 60 days from execution of escrow instructions
6. TITLE INSURANCE: First American Title Insurance provided by Owner
7. LEASE AGREEMENT: A mutually acceptable Lease Agreement
from the City of San Bernardino
(see attached tenns).
8. ACCEPTANCE: This Offer to Purchase. unless accepted in
writing, will expire on September IS, 1992.
ACCEPTED AND AGREED,
VWeOPMENT COMPANY, INC.
By:~1 .~
Richard Domingue?;, President
Date: 10 ?tVt 92-
CITY OF SAN BERNARDINO
~
By:
Date:
REDEVELOPMENT AGENCY FOR
THE CITY OF SAN BERNARDINO
Dy:
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. SH'-23-92 t.r:D 14: 56
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CONFIDENTIAL
'.
LEASE AGREEMENT TERMS
8. Lease Term: 24 year term.
b. Net Lease: All utilities and expenses including real
estate taxes, if any, are to be paid by the
Lessee.
t. Base Rental Rate: $.75 per square foot per month for the entire
building.
d. Rental AdJustment:* 1. During the first five years of the lease
term, the rental amount will be adjusted to
include only that soace which is occupied.
2. There shall be a 3% increase in rent
computed and adjusted annually throughout
the term of the lease beginning upon the
5th year of the lease term.
e. Option to Purchase: At the expiration of the 20th year of the
initial term, the City may repurchase the
facility for the sum of $2,000,000. reducing
thereafter by $500,000 per year 10 the end of
the lease term with a payment of $10.00 at
the expiration ohhe lease term.
*Note: The bllilding is approximately 70~. occupied with City offices and other tenants.
City offices occupy approximately 50% of the total building space and additional tenants
occupy approximately 20%. It is estimated thilllhe City orSan Bernardino will utilize
the balance space within the next 3 years.
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. . SEP-2'3-92 WED 14: 59
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Miller & Schroeder Financial, Inc.
505 Lo.... S."t. F. Drln - au... 100 - P.o. 80>( 848 ..
Sol.... _uoh, C.lIforal. 0.0"'0'1'
H..dquart.", Mlnn"pO"a, Mllln..ot.
Toll Free (800) 542-0288 Fax (019) 481-8017
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RBOUBSr POR COIKrSSIOIl/COURCIL ACTIOIl
From:
~nA~A J. HEftDERSOIl
Bzecutive Director
Subject: OFI'BR TO PlJRCIWIB-201
.... S1'b.u BUILDIlIG
Date:
September 25, 1992
SYnODS is of Preyious CNRafssianlCoancil/CNRafttee Action(s):
08/06/92 The Redevelopment Committee received and filed an item on an
offer to purchase from Vanir Development for $4.5 million.
09/10/92 The Redevelopment Committee heard a recommendation to reject
the $4.5 million offer; Vanir increased the offer to $5
million; the Committee directed a new analysis.
09/24/92 The Redevelopment Committee heard a recommendation to reject
the $5 million offer; direction vas to forward the item to
the Commission vith no recommendation.
RecnMm~~ed IIotion(s):
(C-itv Deyelo_ent CNRaission)
IIlrIO.
That the Community Development Commission reject the $5
million offer to purchase the 201 lIorth "E" Street
buildina from Vanir Development CompBllY, Inc.
~
Administrator
Contact Person(s):
!Cen Henderson/John Wood
Phone:
5081
Project Area(s): Central Citv Pro1ects
Ward(s): One (1)
Supportina Data Attached: Staff ReDort:Vanir Offer:Miller & Schroeder Analvsis
FUNDIRG REQUIREMEl'ITS:
Amount: $ RIA
Source:
RIA
Budget Authority:
RIA
CommissianlConnril lIotes:
ICJH:JMW:0071g
COIBISSIO. IlEBrIBG AGDDA
lleeting Date: 10/05/1992
Ageada Iteall1aber: ~
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DEVELOP.ERr DEPARr.ERr
01' rBB CI1T 01' SAIl R'RV.umIBO
snn RBPORr
01'l'BR TO PURt:II4!l1l: - 201 Worth 'E' S'I'II1nf'r BUILDIBG
On August 6, 1992, the Redevelopment Committee received and filed staff
comments on an offer to purchase the 201 Worth "B" Street building
("the building") from Vanir Development Company, Inc., ("Vanir"). As
staff had not had an adequate am01D1t of time to analyze this $4.5
million offer, the Committee asked that further evaluation be performed.
On September 10, 1992, the Committee considered a detailed staff
analysis and a recommendation to reject the $4.5 million offer.
Representatives of Vanir were present and submitted an improved offer
for $5 million (see attached copy). The Committee directed that said
offer be thoroughly evaluated and a recommendation be brought back to
the September 24, 1992 Committee meeting.
At its September 24, 1992 meeting, representatives of Vanir were not
present and althOUgh detailed discussion took place regarding the
relative advantages and disadvantages of Vanir's improved offer, the
Committee directed that the item be forwarded to the full Commission
for consideration, without a recommendation.
Staff, with the assistance of B.B. Wood and Associates and Miller &
Schroeder Financial, Inc., has analyzed the new offer and presents the
following breakdown of advantages and disadvantages:
Di..dvanta"U!8 :
1. While Vanir has raised its offer to $5 million, it has stipulated
that the Economic Development Agency (BDA) must perform an
appraisal to justify this price. This could cost $4,000 to $5,000
and take a month or more to complete. If the Commission were to
accept the offer, staff would explore whether Vanir would waive
this requirement.
2. If the desire is to raise cash from the bUilding, tapping into the
equity could probably be accomplished less expensively through a
bond issue. Jim Iverson from Miller and Schroeder FinanCial,
Inc., hss advised the Mayor the Agency could accomplish the
desired result more cost effectively with bonding than through
acceptance of Vanir's offer. A more detailed discussion of this
issue can be found at the end of this report.
ICJB:JMW:0071g
co.rSSlOW IID'fDG AGBBD.\
Meeting Date: 10/05/1992
Agenda It.. lflaber: ~
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DEVELOPIIIIIr DBP.&n.u...l SUIT DPOIIr
U: O!TEll TO PlmCIIASB 201 101m[ ..." SxIWU: BUILDIlIG
Septeaber 25. 1992
Paae w-ber -2-
3.
If the decision is made to sell the bUilding, it should be
advertised and other offera invited. The Agency might receive a
better offer than Vanir's. This is an appropriate course of
action to enable the Agency to let a better offer and live
potential buyersa fair chance to compete. While Vanir has offered
to allow IDA to solicit other cash offers for a period of sixty
(60) days following acceptance of its offer, this places a
considerable time constraint on any marketing efforts that might
be undertaken. It should be noted, however, that staff can see no
urlency or need to sell and feels that this is a bad time,
economically spe8king, for anyone to be selling property. In
other words, it is a buyer's market.
Vanir's offer involves a leaseback to.the Agency at $.75 per square
foot IIIB. WhUe Vanir offers to charle this rate only on the space
actually occupied during the first five (5) years of the lease term,
the rent for the balance of the term would be based on the entire
building leasable square footale. It is debatable whether the City
and/or IDA would Irow into all of the approximately 70,000 square
feet of space within five (5) years.
4.
Though Vanir assumes that the building is currently seventy percent
(70S) occupied, staff estimates that the filure would be closer to
fifty percent (50S), unless we include space on the second floor
which is occasionsly used by Personnel/Civil Service for testing and
for various other City functions such as Manalement Association
meetings. It is unclear whether Vanir would consider this
intermi ttently used space as "occupied". Moreover, whUe the Agency
would be paying $.75 per square foot, we are not receiVing that much
frOll Bil Five or Isabella's Ristorante, nor is it clear that the
Agency would be able to realize this much from future rentals.
Finally, staff feels that, for a "credit tenant" such as the Agency,
a more appropriate rental rate would be in the neighborhood of $.50
per square foot.
5.
Under the proposal submitted by Vanir, the Agency would be
responsible for all maintenance, janitorial, utilities, taxes,
insurance and any and all miscellaneous costs, the s8lle items it is
currently responsible for as owner.
ICJH:JMW:00711
COfMISSIO. IIBBTIlIG AGBlUlA
Reet1n& Date: 10/05/1992
Aaeada It_ lluUer: --9--
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DBVELOPIIBIIr DBPh.uma.. STAn' RBPORT
D: 01TBlt TO PllRCIWIE 2011101m1 ..." SDBBr BDILDIBG
September 25. 1992
Pqe JI1aber -3-
Advant..es:
1. The receipt of $5 million in cash. less sale expenses, would
certainly be beneficial to EDA'a financial profile. It is also
noteworthy that the proceeds would flow back into tax increment, as
opposed to bond proceeds. In terms of funding new projects, tax
increment is less restricted than bond proceeds.
2. Assuming the funds will be retained, the Agency could receive
investment income on the ssle proceeds until they were used for
another project. As it is, with the building largely unoccupied,
the Agency receives little in the way of a current return on its
inveatment. This situation could be reversed if the building is
fully rented under ED! ownership.
3.
Under the new offer, Vanir proposes a twenty-four (24) year lease
term, aiving the Agency the option to repurchase the building in
year twenty (20) for $2 million. Thereafter, the repurchase price
drops by $500,000.00 per year until year twenty-four (24), when EDA
may repurchase the building for $10.00. This repurchase option is
undoubtedly attractive, as the building will almost assuredly be
worth several millions of dollars by the expiration of the lease
term.
Thouah there is no question that Vanir's revised offer is more attractive
than the oriaina1. staff still recommends against acceptance of the
offer. An analysis by Miller & Schroeder Financial, Inc. (copy attached)
demonstrates that the Agency would be far better off by isSUing bonds
against the property than by selling to Vanir.
The principal components of the analysis can be found in the first three
paaes (numbered 002 throuah 004). The first pqe is an analysis of the
costs and benefits to the Agency if it accepts the current Vanir offer
involving the $.75 per square foot rental fiaure. As can be seen at the
lower ri&ht of the table, this scenario would result in a present value
debit balance to the aaency of $3,408,134.20. In other words, this is
what it would cost the Agency to agree to the current offer.
The second pqe provides the same type of cost/benefit analysis, but this
time looking at the same offer from Vanir, except that the rental figure
has been chan&ed to $.50 per square foot. Again. the result can be seen
in the lower ri&ht of the table. As one would expect if the Agency's rent
was lower, the present value debit balance is lower than in the above
example, but ati1l amounts to $605,423.44.
ICJlI:JMW:0071a
COIIIISSIO. IIDTIK AGDDA
Reetina Date: 10/05/1992
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DBVBLOPMDr DBPAa'buwo.. SU!'I' IBPORr
D: OFI'D TO PlmCIIASB 201 IIORrII ... SDDr BUILDIlIG
Septeaber 25. 1992
Peae lI1aber -4-
The third paae examines the c:osts and benefits to the Alenc:y of pursuil1&
a bond issue instead of se11il1& the buildil1&. Onc:e aaain 100kil1& at the
lower riaht of the table, it c:an be seen that the present value debit
balanc:e for this sc:enario is only $73,596.05, and is thus the least
c:ost1y alternative of the three which have been examined.
Ac:c:ordil1& to the ana1yais, the 1011& tem savil1&s to the Alenc:y from
bondil1&. as opposed to sc:c:eptil1& Vanir's revised offer, amounts to
$3,334,538.20. This fiaure is arrived at by subtrac:til1& the bondil1& c:ost
of $73,596.05 from the c:ost of the c:urrent Vanir offer, which is
$3,408,134.20. For Vanir's offer to be the equivalent of a bond issue,
the purchase pric:e would have to be $8.334,538 with a rental of $.75 per
square foot or $5.531,827 with a rental of .$.50 per,square foot (assumil1&
all other deal points aa enumerated in Vanir's revised offer stay the
same).
Based upon the foreaoil1& and the fac:t that it is abundantly c:lear that
the bondil1& sc:enario is in the Alenc:y's 1011&-tem best interests, staff
rec:ommends adoption of the form motion.
~~BJlSO.. becutbe Direc:tor
Deye1o~ent Departaent
JC.JH:JMW:0071a
CCRlISSIO. IIIBrIIIG AGKImA
ReetiDa Date: 10/05/1992
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V ANIR DEVELOPMENT COMPANY, INC.
P.O. Box 310. V.air T_. City HaD Plaza. SaIlIlemardiao. California 92402
T.leph_ (714) 884-9477
Coalmtr<iaIIIDdIlltrial Dtwlopers . RoaI Estole Broken
September 10, 1992
Chairwoman Esther Estrada
REDEVELOPMENT AGENCY COMMITrEE
201 North "E" Street
San Bernardino, CA 92401
DcarEsther:
Thank you again for the opportunity of presenting our Offer to PUrchase the 201
Building in the City of San Bernardino.
AB you know, this matter was postponed to allow Staff sufficient time to provide a
thorough analysis of our offer. Having received that information from Staff today, we
have revised our offer accordingly.
( : Our offer is being made with the assumption that the City, as many other cities and
governmental bodies throughout the country, is desirous of not being in the real estate
business and, thereby, focusing its assets and attention to the operation and management
of City affairs.
We have revised our offer to meet the needs of the City and as you must conclude, the
revised Offer to Purchase is in the best interest of the City.
Thank you for your kind consideration.
Very truly yours,
VANIR DEVELOPMENT COMPANY, INC.
~.,j!.
H., DOMINGUEZ
HFD:cb
Enclosures: Revised Offer to Purchase
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LOS ANGELES
.
SAN BERNARDINO
.
SACRAMENTO
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CONFIDENTIAL
OFFER TO PURCHASE
1. SUBJEcr PROPERTY: 201 North E Street, San Bernardino, California
2. PURCHASE PRICE: 55,000,000 or .ppraised value. whichever is less
3. BUYER: Vanir Development Company, Inc. or
its nominee
4. SELLER: Redevelopment Agency fpr the City of
San Bernardino
5. CLOSE OF ESCROW: 60 days from execution of escrow instructions
6. TITLE INSURANCE: First American Title Insurance provided by Owner
<: 7. LEASE AGREEMENT: A mutually acceptable Lease Agreement
from the City of San Bernardino
(see attached terms).
8. ACCEPTANCE: This OtTer to Purchase, unless accepted in
writing, will expire on September IS, 1992.
ACCEPTED AND AGREED:
V~OPMENTCOMPANY, INC.
By: '\1QV,
Richard Dominguez, President
Date: 1.D ?tyt q 2-
CITY OF SAN BERNARDINO
By:
Date:
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REDEVELOPMENT AGENCY FOR
THE CITY OF SAN BERNARDINO
By:
Date:
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CONFIDENTIAL
LEASE AGREEMENT TERMS
L Lease Term: 24 year term.
b. Net Lease: All utilities and expenses including real
estate taxes, if any, are to be paid by the
Lessee. .
e. Base Rental Rate: S.75 per square foot per month for the entire
building.
d. Rental AdJustment:* I. During the first five years of the lease
<: term, the rental amount will be adjusted to
include only that ~ace which is oCCQpied.
2. There shall be a 3% increase in rent
computed and adjusted annually throughout
the term of the lease begiMing upon the
5th year of the lease term.
e. Option to Purchase: At the expiration of the 20th year of the
initial term, the City may repurchase the
facility for the sum of S2,ooo,ooo, reducing
thereafter by S5oo,ooO per year to the end of
the lease term with a payment onto.oo at
the expiration of the lease term.
. *Note: The building is approximately 70o/I!. occupied with City offices and other tenants.
City offices occupy approximately 50% of the total building space and additional tenants
occupy approximately 20%. It is estimated that the City of San Bernardino will utilize
the balance space within the next 3 years.
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SPECIAL INSTRUCTION:
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